winding up of company ca final - cakit up of small companies winding up of unregistered companies...

MEGA MENTOR Aseem Sirs notes on WINDING UP after incorporating amendments in companies act due to IBC 2016

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WINDING UP of company CA FINAL

30

Question on winding up Incorporating all amendments in companies act due

to IBC,2016

By MEGA MENTOR

CA. ASEEM TRIVEDI

http://www.cakit.in/



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WINDING UP

Note:- Please refer this chapter only after study of Insolvancy and Bankruptcy Code,2016 Introduction In IBC we have learnt how a corporate debtor can get liquidated if CIRP results in negative on petition filed by

Financial Creditor (FC)

Operational Creditors (OC)

And Corporate Debtor itself (CD) But what if, Shareholders, ROC, Central government want to file petition for winding up of the Company to NCLT, hence circumstances other than circumstances covered by IBC, 2016, winding up will be governed by this Chapter XX of Companies Act 2013. Q.1 What are the various mode by which a company can be dissolved under this or any other act? Winding up is one of the manner in which company comes to an end of its existence but it is interesting to have a look over various modes of dissolution of company under companies act 2013

Compulsory winding up under the Insolvency and Bankruptcy Code, 2016 ( due to

inability to pay debts)

Compulsory winding up under section 271 of the Companies Act,2013 ( reason other

than inability to pay debts)

Voluntary winding up under the Insolvency and Bankruptcy Code, 2016

Voluntary winding up of companies not covered by the Insolvency and Bankruptcy Code,

2016

Dissolution in a scheme of merger under section 230 to 240 of the Act, 2013

Dissolution by striking off name of a defunct company under section of the Act, 2013

Winding up of small companies

Winding up of unregistered companies under section 375 to 378 of the Act, 2013

Winding up of Indian business of foreign companies under section 270 to 303 of the Act,

2013

Q.2 Give and overview of chapter Winding up? Chapter XX of the Companies Act, 2013 consists of sections 270 to 365 related to winding up . Chapter XX of the Companies Act, 213 has been divided into 4 Parts, as follows:

I. Part I: Winding up by the Tribunal: Sections 270 to 303 II. Part II: Voluntary winding up: Sections 304 to 323 (All these sections have

been omitted by the Insolvency and Bankruptcy Code, 2016) III. Part III: Provisions applicable to every mode of Winding up: Sections 324

to 358 IV. Part IV: Official Liquidators: Sections 359 to 365.




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The meaning:- `Winding up' means

winding up under this Act or

liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable [Section2 (94A)]. We have learnt in IBC, 2016 that if CIRP results in no feasibility to continue as going concern the company shall be in liquidation according to provisions of IBC,2016. The provisions of Part I of companies act shall apply to the winding up of a company by the Tribunal under this Act. So now we can say tribunal has power to windup the company in two different acts one IBC, where petitions are made by FC, OC, and CD itself. Q.3 What are the circumstances in which company may be wound up by Tribunal? According to Section 271 of Companies Act, 2013 A company may, on a petition under section 272, be wound up by the Tribunal,—

Basis-1 if the company has, by special resolution, resolved that the company be wound

up by the Tribunal;

Basis -2 if the company has acted against the interests of the sovereignty and integrity of

India, the security of the State, friendly relations with foreign States, public order,

decency or morality;

Basis -3 if on an application made by the Registrar or any other person authorised

by the Central Government by notification under this Act, the Tribunal is of the opinion

that the affairs of the company have been conducted in a fraudulent manner or

the company was formed for fraudulent and unlawful purpose or the persons

concerned in the formation or management of its affairs have been guilty of fraud,

misfeasance or misconduct in connection therewith and that it is proper that the

company be wound up;

Basis -4 if the company has made a default in filing with the Registrar its financial

statements or annual returns for immediately preceding five consecutive financial

years; or

Baisis-5 if the Tribunal is of the opinion that it is just and equitable that the company

should be wound up.

Q.4 Who can file Petition? According to Section 272 A petition to the Tribunal for the winding up of a company shall be presented by—

The company; ( Basis-1 )

Any contributory or contributories ;

AII or any of the persons specified in clauses (a) and (b);

The Registrar; with previous approval of CG ( Basis -2,3,4)

Any person authorized by the Central Government in that behalf; or

In a case falling under clause (b) of section 271, by the Central Government or a State

Government.




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The petition for winding up of a company shall be presented by any of the following persons:

1. The company A petition presented by the company for winding up before the Tribunal shall be admitted only if it is accompanied by a statement of affairs in such form and in such manner as may be prescribed.

2. Any contributory or contributories Condition for presentation of petition by a contributory A contributory shall be entitled to present the petition only if — i) the shares were originally allotted to him; or ii) he has held his shares for at least 6 months during the 18 months

immediately preceding the commencement of winding up; or iii) the shares have been devolved on him by reason of the death of a member.

Certain clarifications with respect to presentation of petition by a contributory A contributory shall be entitled to present a petition for the winding up of a company, notwithstanding that —

i) he may be the holder of fully paid-up shares; or ii) the company may have no assets at all; or iii) the company may have no surplus assets left for distribution among the

shareholders after the payment of its liabilities. 3. All or any of the persons specified in clauses (a) and (b) 4. The Registrar

The Registrar shall be entitled to present a petition for winding up only on the following grounds

Company acting against the security of the country etc.

Where the affairs of the company have been conducted fraudulently

Non-filing of financial statements or annual returns by the company The Registrar shall obtain the previous approval of the Central Government before making a petition for winding up. Further, the Central Government shall not grant the approval to the Registrar unless the company has been given a reasonable opportunity of Making representations. 5. Any person authorized by the Central Government in that behalf 6. The Central Government or a State Government, if the petition is made on the ground that the company has acted against the interests of —

a) the sovereignty and integrity of India; or b) the security of the State; or c) friendly relations with foreign States; or d) public order; or e) decency; or f) morality.

A copy of every petition made to the Tribunal for winding up of a company shall also be filed with the Registrar. The Registrar shall submit his views to the Tribunal within 60 days of receipt of such petition.




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Q. 5 What are the powers of the tribunal (section 273) On receipt of a petition for winding up under section 272,NCLT can make Following orders:-

a) Dismiss it, with or without costs. b) Make any interim order as it thinks fit. c) Appoint a provisional liquidator of the company till the making of a

winding up order. d) Make an order for the winding up of the company with or without costs.

The Tribunal shall not refuse to make a winding up order merely because of the reason that —

a) the assets of the company have been mortgaged for an amount equal to or in excess of those assets; or

b) the company has no assets. e) Any other order as it thinks fit.

It is important to note that The Tribunal shall pass its order within 90 days from the date of presentation of the petition. Q6 What are the conditions to appoint a provisional Liquidator? Before appointing a provisional liquidator, the Tribunal shall —

give notice to the company;

grant to the company a reasonable opportunity to make its representations, if any.

However, the Tribunal may not give such notice if it is of the opinion that there is some special reason because of which notice need not be given to the company. The Tribunal shall record in writing such special reasons. Q.7 What is Duty of NCLT when petition is filed by any person other than the company?

According to Section 274 of the Companies Act, 2013 a) Where a petition for winding up is filed before the Tribunal by any person other

than the company, the Tribunal shall, if it is satisfied that a prima facie case for winding up of the company is made out, by an order direct the company to file its objections along with a statement of its affairs within 30 days of the order in such form and in such manner as may be prescribed.

b) However, the Tribunal may allow a further period of 30 days in a situation of contingency or special circumstances.

c) The Tribunal may direct the petitioner to deposit such security for costs as it may consider reasonable as a precondition to issue directions to the company.

d) If a company fails to file the statement of affairs, then — i. the company shall not have a right to oppose petition and

ii. a complaint may be filed in this behalf before the Special Court by Registrar, provisional liquidator, Company Liquidator or any person authorized by the Tribunal, and thereupon the directors anci officers of the company liable for such non- compliance, shall be liable for imprisonment upto 6 months or with fine which shall not be less than Rs. 25,0010 but which may extend to Rs. 5 lakh, or with both.

It is also interesting note that when an order of winding up of a company is passed by the Tribunal, the directors and officers of the company shall, within 30, days, submit to the




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liquidator, the books of account of the company duly completed and audited upto the date of the order of the tribunal. Q8 How liquidator is appointed and by whome? And who can be appointed as liquidator? According to Section 275 of the companies act , where the Tribunal makes an order for winding up of a company, the Tribunal shall appoint the Company Liquidator for the purpose of winding up of the company. According to section 2(23) of the act `Company Liquidator' means a person appointed by the Tribunal as the Company Liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act . While passing a winding up order, the Tribunal may appoint a provisional liquidator, if any, as the Company Liquidator for the conduct of the proceedings for the winding tip of the company. The Company Liquidator shall be either —

a) the Official Liquidator appointed by Cenral Government as per section 359; or b) a person who is registered as an insolvency professional under the Insolvency

and Bankruptcy Code, 2016. Q.9 What are the Terms and conditions of the appointment of the liquidator? According to section 275(5) The terms and conditions of appointment of a provisional liquidator (if appointed as per powers of tribunal under 272)or Company Liquidator and the fee payable to him or it shall be specified by the Tribunal on the basis of task required to be performed, experience, qualification of such liquidator and size of the company. In case where a provisional liquidator is appointed by the Tribunal, the Tribunal may limit and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator. Q.10 What is duty of liquidator on appointment? According to section 275(6) It is duty of provisional liquidator or liquidator to file a declaration of independence with tribunal within 7 days of appointment as provisional liquidator or Company Liquidator, he shall give a Declaration disclosing conflict of interest or lack of independence in respect of his, appointment, if any. Such obligation shall continue throughout the term of bus appointment

Q.11 What will be the effect of winding up Order (Section 278)

1. Will be treated as joint petition of creditors and contributories: According to section 278 the order for the winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.

2. Stay of suits and legal proceedings:- According to section 279 no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as the Tribunal may impose once a winding order is passed or provisional liquidator is appointed.

3. Application for leave of commencement or continuation of any suit Any application to the Tribunal seeking leave for commencement or continuation of any suit or other legal proceedings shall be disposed of by the Tribunal within 60 days. It is interesting to note that any appeal pending before the, Supreme Court or a High Court shall not be stayed.




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Q.12 What is Duty of liquidator once he proceeds for commences the liquidation process? According to section 281 Liquidator shall submit a report to the tribunal within 60 days from the order containing the following particulars:

a) The nature and details of the assets of the company including their location and value, stating separately the cash balance in hand and in the bank, if any, and the negotiable securities, if any, held by the company:

The valuation of the assets shall be obtained from registered valuers for this purpose. b) Amount of issued, subscribed and paid-up capital c) The existing and contingent liabilities of the company including names, addresses

and occupations of its creditors, stating separately the amount of secured and unsecured debts, and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given

d) The debts due to the company and the names, addresses and occupations of the persons from whom they are due and the amount likely to be realised on account thereof

e) Guarantees, if any, extended by the company f) List of contributories and dues, if any, payable by them and details of any unpaid

call g) Details of trademarks and intellectual properties, if any, owned by the company h) Details of subsisting contracts, joint ventures and collaborations, if any i) Details of holding and subsidiary companies, if any j) Details of legal cases filed by or against the company k) Any other information which the Tribunal may direct or the Company Liquidator

may consider necessary to include. Specific Reporting by Liqudator

1. About Promoters Fraud:-The Company Liquidator shall include in his report the manner in which the company was promoted or formed and whether in his opinion any fraud has been committed by any person in its promotion or formation or by any officer of the company in relation to the company since the formation thereof and any other matters which, in his opinion, it is desirable to bring to the notice of the Tribunal.

2. Report About viability of business :- a report on the viability of the business of the company or the steps which, in his opinion, are, necessary for maximizing the value of the assets of the company.

3. Any other matters which liquidator thinks fit to report Q.13 Who can inspect this report of Liqudator?

According to section 281(5) any person describing himself in writing to be a creditor or a

contributory of the company shall be entitled by himself or by his agent at all reasonable

times to inspect the report submitted in accordance with this section and take copies thereof

or extracts therefrom on payment of the prescribed fees.




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Q.14 What will be tribunal’s reaction on receipt of the report of Liquditor? After considering the report following may be tribunals action 1. Fixing time for completion of the Winding up process The tribunal shall after considering the report shall fix a time limit within which the entire proceedings shall be completed and the company be dissolved. The Tribunal may, if it. is of the opinion, at any stage of the proceedings, or on examination of the reports submitted to it by the Company Liquidator and after hearing the Company Liquidator, creditors or contributories or any other interested person, that it will not be advantageous or economical to continue the proceedings, revise the time limit within which the entire proceedings shall be completed and the company be dissolved. The Tribunal may, on examination of the reports submitted to it by the Company Liquidator and after hearing the Company Liquidator, creditors or contributories or any other interested person, order sale of the company as a going concern or its assets or part thereof. Constitution of sale committee The Tribunal may, where it considers fit, appoint a sale committee comprising such creditors, promoters and officers of the company as the Tribunal may decide to assist the Company Liquidator in sale. Order of investigation and filing of criminal complaint in case fraud is reported Where a report is received from the Company Liquidator or the Central Government or any person that a fraud has been committed in respect of the company, the Tribunal shall, without prejudice to the process of winding up, order for investigation under section 210, and on consideration of the report of such investigation it may pass order and give directions under sections 339 to 342 or direct the Company Liquidator to file a criminal complaint against persons who were involved in the commission of fraud. Order of Tribunal for protection or preservation of assets The Tribunal may order for taking such steps and measures, as may be necessary, to protect, preserve or enhance the value of the assets of the company. Other orders and directions by Tribunal The Tribunal may pass such other order or give such other directions as it may consider fit. Q.15 How the control over companies assets will be excersied by tribunal after passing an order? According to section 283 it is duty of the liquidator or provisional liquidator as the case may be on the order of the Tribunal, forthwith take into his or its custody or control all the property, effects and actionable claims to which the company is or appears to be entitled to and take such steps and measures, as may be necessary, to protect and preserve the properties of the company. It is interesting to note that all the property and effects of the company shall be deemed to be in the custody of the Tribunal from the date of the order of winding up of the company. On an application by the Company Liquidator or otherwise, the Tribunal may, at any time after the making of a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, officer or other employee of the company, to pay, deliver, surrender or transfer forthwith, or within such time as the




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Tribunal directs, to the Company Liquidator, any money, property or books and papers in his custody or under his control to which the company is or appears to be entitled. Q,16 What are the provisions relating to settle the list of contributories and application of asset by tribunal? According to section 285 as soon as may be after the passing of a winding up order by the Tribunal, the Tribunal shall

a) settle a list of contributories;

b) cause rectification of register of members in all cases where rectification is required in pursuance of this Act; and

c) Cause the assets of the company to be applied for the discharge of its liability. In settling the list of contributories, the Tribunal shall distinguish between those who are contributories in their own right and those who are contributories as being representatives of, or liable for the debts of, others. The Tribunal may dispense with the settlement of list of contributories if it appears to the Tribunal that it would not be necessary to —

a) make calls on contributories;

b) adjust the rights of contributories. While settling the list of contributories, the Tribunal shall include every person, who is or has been a member, who shall be liable to contribute to the assets of the company an amount sufficient for payment of the debts and liabilities and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves, subject to the following conditions:

a) A person who has been a member shall not be liable to contribute if he has ceased to be a member for the preceding 1 year or more before the commencement of the winding up.

b) A person who has been a member shall not be liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member.

c) No person who has been a member shall be liable to contribute unless it appears to the Tribunal that the present members are unable to satisfy the contributions required to be made by them in pursuance of this Act.

d) In the case of a company limited by shares, no contribution shall be required from any person, who is or has been a member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as such member.

e) In the case of a company limited by guarantee, no contribution shall be required from any person, who is or has been a member exceeding the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up but if the company has a share capital, such member shall be liable to contribute to the extent of any sum unpaid on any shares held by him as if the company were a company limited by shares.

Q.17 What are the powers of tribunal to form Advisory Committee? Accordng to section 287 of the companies act the Tribunal may, while passing an order of winding up of a company, direct that there shall be an advisory committee to advise the Company Liquidator and to report to the Tribunal on such matters as the Tribunal may direct.




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Q.18 Explain the constitution , meeting , proceedings and rights of such Advisory Committee? Constitution:- The advisory committee appointed by the Tribunal shall consist of not more than 12 members, being creditors and contributories of the company or such other persons in such proportion as the Tribunal may, keeping in view the circumstances of the company under liquidation, direct. Meetings:- The Company Liquidator shall convene a meeting of creditors and contributories, as ascertained from the books and documents of the company, within 30 days from the date of order of winding up, for enabling the Tribunal to determine the persons who may be Members of the advisory committee. Rights :- The advisory committee shall have the right to inspect the books of account and other documents, assets and properties of the company under liquidation at a reasonable time. Procedure for meetings :-The provisions relating to the convening of the meetings, the procedure to be followed thereat and other matters relating to conduct of business by the advisory committee shall be such as may be prescribed. Important to note that the meeting of advisory committee shall be chaired by the Company Liquidator. Q.19 What is duty of liquidator to report to Tribunal? According to section 288 of the companies act 2013, The Company Liquidator shall make periodical reports to the Tribunal and in any case make a report at the end of each quarter with respect to the progress of the winding up of the company in such form and manner as may be prescribed, it should be further noted that the Tribunal may, on an application by the Company Liquidator, review the orders made by it and make such modifications as it may think fit.

Q.20 What is duty of Company Liquidator to maintain books with respect to proceedings of meetings? According to section 293 of the Companies Act,2013, the Company Liquidator shall keep proper books in such manner, as may be prescribed, in which he shall cause entries or minutes to be made of proceedings at meetings and of such other matters as may be prescribed. It should be noted that any creditor or contributory may, subject to the control of the Tribunal, inspect any such books, personally or through his agent. Q.21 What are the provisions under the companies act regarding maintenance of Company Liquidator's accounts? According to section 294 of the companies act the Company Liquidator shall maintain proper and regular books of account including accounts of receipts and payments made by him in such form and manner as may be prescribed. It is further duty of the liquidator that he shall, at such times as may be prescribed but not less than twice in each year during his tenure of office, present to the Tribunal an account of the receipts and payments in the prescribed form in duplicate, which shall be verified by a declaration in such form and manner as may be prescribed. Q.22 What are the provisions under the companies act regarding audit of accounts maintained by liquidator? It is also provided in section 294 of the act , tribunal shall cause the accounts to be audited in such manner as it thinks fit, and for the purpose of the audit, the Company Liquidator shall furnish to the Tribunal with such vouchers and information as the Tribunal may




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require, and the Tribunal may, at any time, require the production of, and inspect, any books of account kept by the Company Liquidator. Q.23 Is there any provision for Filing of audited accounts with ROC by Liquidator? According to section 294 when the accounts of the company have been audited, one copy thereof shall be filed by the Company Liquidator with the Tribunal, and the other copy shall be delivered to the Registrar which shall be open to inspection by any creditor, contributory or person Interested. Special point to remember in case of government company:- In case of Government company, the Company Liquidator shall forward a copy thereof —

a) to the Central Government, if that Government is a member of the Government company; or

b) to any State Government, if that Government is a member of the Government company; or

c) to the Central Government and any State Government, if both the Governments are members of the Government company.

Is there any duty to send printed copy of accounts to creditors and contributories? It is further provided in section 294 that the Company Liquidator shall cause the accounts when audited, or a summary thereof, to be printed, and shall send a printed copy of the accounts or summary thereof by post to every creditor and every contributory. It is interesting to note that the Tribunal may dispense with the compliance of this provision if it deems fit. Q.24 What are the Powers of Tribunal to make order requiring contributories to pay and to allow them set off? According to section 295 of the act, the Tribunal may, at any time after passing of a winding up order, pass an order requiring any contributory for the time being on the list of contributories to pay, in the manner directed by the order, any money due to the company, from him or from the estate of the person whom he represents, exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act. The Tribunal may

a) in the case of an unlimited company, allow to the contributory, by way of setoff, any money due to him or to the estate which he represents, from the company, on any independent dealing or contract with the company, but not any money due to him as a member of the company in respect of any dividend or profit; and

b) In the case of a limited company, allow to any director or manager whose liability is unlimited, or to his estate, such set-off.

In the case of any company, whether limited or unlimited, when all the creditors have been paid in full, any money due on any account whatever to a contributory from the company may be allowed to him by way of set-off against any subsequent call. Q.25 What are the powers of tribunal to make calls ? According to section 296, the Tribunal may, at any time after the passing of a winding up order, and either before or after it has ascertained the sufficiency of the assets of the company, —

a) make calls on all or any of the contributories for the time being on the list of the contributories, to the extent of their liability, for payment of any money which the




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Tribunal considers necessary to satisfy the debts and liabilities of the company, and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves; and

b) Make an order for payment of any calls so made.

Q.26 When tribunal may pass order for Dissolution of company ? According to section 302 of the companies act ,when the affairs of a company have been completely wound up, the Company Liquidator shall make an application to the Tribunal for dissolution of such company. The Tribunal shall on an application filed by the Company Liquidator or when the Tribunal is of the opinion that it is just and reasonable in the circumstances of the case that an order for the dissolution of the company should be made, make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly. A copy of the order shall, within 30 days from the date thereof, be forwarded by the Company Liquidator to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company. If the Company Liquidator makes a default in forwarding a copy of the order within 30 days from the date of the order of the Tribunal, he shall be punishable with fine which may extend to Rs. 5,000 for every day during which the default continues. Q.27 What is provision of Overriding Preferential Payments? The section 326 as amended by section 255 read with Schedule XI of the Insolvency and Bankruptcy Code, 2016 following are the provisions:-

In the winding up of a company, the following debts shall be paid in priority to all other debts:

(a) Workmen's dues; and

(b) Where a secured creditor has realized a secured asset, so much of the debts due to such secured creditor as could not be realized by him or the amount of the workmen's portion in his security (if payable under the law), whichever is less, pari passu with the workmen's dues.

The following sums which are payable for a period of 2 years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of 30 days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed:

(a) All wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947.

(b) All accrued holiday remuneration becoming payable to any workman or, in the case of his death, to any other person in his right on the




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termination of his employment before or by the effect of the winding up order. These debts shall be paid in full before any payment is made to secured creditors. Thereafter, the following debts shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions:

(a) Workmen's dues; and

(b) Where a secured creditor has realised a secured asset, so much of the debts due to such secured creditor as could not be realised by him or the amount of the workmen's portion in his security (if payable under the law), whichever is less, pari passu with the workmen's dues.

For the purposes of this section, and section 327 — (a) 'Workmen', in relation to a company, means the employees of the company, being workmen as defined under section 2(s) of the Industrial Disputes Act, 1947; (b) 'Workmen's dues', in relation to a company, means the aggregate of the following sums due from the company to its workmen:

(i) All wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947.

(ii) All accrued holiday remuneration becoming payable to any workman or, in the case of his death, to any other person in his right on the termination of his employment before or by the effect of the winding up order.

(iii) Unless the company is being wound up voluntarily merely for the purposes of reconstruction or amalgamation with another company or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923, rights capable of being transferred to and vested in the workmen, all amount due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company.

(iv) All sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare, of the workmen, maintained by the company.

(c) 'Workmen's portion', in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of the amount of workmen's dues and the amount of the debts due to the secured creditors. Section 326 shall not apply in the event of liquidation under the Insolvency and Bankruptcy Code, 2016.




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Q.28 What is provision of Preferential Payment? Section 327 as amended by section 255 read with Schedule XI of the Insolvency and Bankruptcy Code, 2016, according to it in a winding up, following debts shall be paid in priority to all other debts:

(a) All revenues, taxes, cesses and rates due, within 12 months immediately before the relevant date, to —

(i) the Central Government; or

(ii) any State Government; or

(iii) to a local authority.

(b) All wages or salaries due for a period not exceeding 4 months within 12 months immediately before the relevant date,

Such -amount payable to any workman .shall not exceed the amount as may be notified

(c) All accrued holiday remuneration becoming payable to any employee, or in the case of his death, to any other person claiming under him.

(d) All amounts due in respect of contributions payable under the Employees' State Insurance Act, 1948 or any other law for the time being in force during the period of 12 months immediately before the relevant date.

(e) All amounts due in respect of any compensation or liability for compensation under the Workmen's Compensation Act, 1923 in respect of the death or disablement of any employee of the company.

(f) All sums due to any employee from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare of the employees, maintained by the company.

(g) The expenses of any investigation held in pursuance of sections 213 and 216, in so far as they are payable by tilt company.

The debts payable under this section shall rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. The debts payable under this section shall have priority over the claims of holders of debentures under any floating charge created by the company. Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the dais under this section shall be discharged forthwith so far as the assets are sufficient to meet them.




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Section 327 shall not apply in the event of liquidation under the Insolvency and Bankruptcy Code, 2016. Q.29 What do you mean by fraudulent preference? According to section 328 where a company has given preference to a person who is one of the creditors of the company or a surety or guarantor for any of the debts or other liabilities of the company, and the company does anything which has the effect of putting that person into a position which, in the event of the company going into liquidation, will be better than the position he would have been in, if that thing had not been done prior to 6 months of making winding up application, the Tribunal, if satisfied that, such transaction is a fraudulent preference may order as it may think fit for restoring the position to what it would have been if the company had not given that preference. If the Tribunal is satisfied that there is a preference transfer of property, movable or immovable, or any delivery of goods, payment, execution made, taken or done by or against a company within 6 months before making winding up application, the Tribunal may make such order as it may think fit and may declare such transaction invalid and restore the position. It is important to note that According to section 329, any transfer of property, movable or immovable, or any delivery of goods, made by a company, shall be void against the Company Liquidator, if 1) it was made within a period of 1 year before the presentation of a petition for

winding up by the Tribunal; 2) it was not a transfer or delivery made in the ordinary course of its business; and 3) it was not a transaction entered into in good faith and for valuable consideration. Q.30 What are the provision of Disclaimer of onerous Properties? Where any part of the property of a company which is being wound up consists of —

(a) land of any tenure, burdened with onerous covenants; or

(b) shares or stocks in companies; or (c) any other property which is not saleable or is not readily saleable by reason of

the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or

(d) Unprofitable contracts, the Company Liquidator may disclaim such property in accordance with the provisions of this section. The Company Liquidator may disclaim the onerous property in accordance with the provisions of this section, notwithstanding that he has —

(a) endeavoured to sell such property; or

(b) taken possession of such property; or

(c) exercised any act of ownership in relation such property; or

(d) done anything in pursuance of any contract.




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Following conditions shall be satisfied before disclaiming the Onerous Property:- (a) The Company Liquidator may disclaim the onerous property within 12 months after the commencement of the winding up or such extended period as may be allowed by the Tribunal. If the Company Liquidator had not become aware of the existence of any onerous property within 1 month from the, commencement of the winding up, the power of disclaiming the property may be exercised at any time within 12 months after he has become aware thereof or such extended period as may be allowed by the Tribunal. =================================================================


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